Question

Ideally, a board of directors for a family business should

a. include no family members.
b. be made up of mostly independent, non-affiliate directors.
c. be made up mostly of affiliate directors, nonfamily members who already have a relationship with the company.
d. include an equal balance of family and independently acting members.

Answer 1

For a family business, the ideal board of directors should comprise mostly independent, non-affiliate directors to maintain objectivity and reduce conflicts of interest, while ensuring the company's best interests align with those of the shareholders.

Step-by-step explanation:

Within the scope of corporate governance, the composition of a board of directors in a family business is critical for ensuring the company is run in the best interests of the shareholders.

The directors are responsible for oversight of the company's top executives and are elected by the shareholders.

Nonetheless, it often happens that these executives have significant influence in nominating board members, which can raise questions about the board's independence.

Ideally, a board of directors for a family business should be made up of mostly independent, non-affiliate directors (option b).

This is recommended because independent directors are less likely to have conflicts of interest and are more likely to objectively assess management's performance and the company's direction.

While it is common for family members to be involved in the business, having a greater proportion of independent directors can help in maintaining professionalism and objectivity.